PREVIEW-As Yellen makes Fed debut, expect theater, not fireworks

By Jonathan Spicer Feb 9 (Reuters) - Janet Yellen's first test as chair of theFederal Reserve comes on Tuesday when she faces U.S. lawmakers,some hostile to the central bank, who will want to know howcommitted she is to winding down the Fed's support for theeconomy. With the world's financial markets watching, Yellen, whosucceeded Ben Bernanke last week, will have a chance to set amostly upbeat tone and point to signs of steady economicprogress, despite some recent bumps in the road. The Fed has embarked on perhaps its most difficult policyshift after five years of ultra-easy money. It has begun scalingback its bond-buying stimulus, but at a measured pace that couldfrustrate some Republicans who think the program is reckless. Those concerns will be aired on Tuesday, when Yellen appearsbefore the Republican-controlled House Financial ServicesCommittee to testify on the Fed's semiannual monetary policyreport. Her testimony will be released at 8:30 a.m. (1330 GMT),although the hearing does not begin until 10 a.m. (1500 GMT). She testifies to the Democrat-controlled Senate BankingCommittee on Thursday. The Fed has trimmed its asset purchases twice sinceDecember, encouraged by momentum in the economy late last year.But two months of weak U.S. jobs growth, a slump inmanufacturing and a recent selloff in emerging markets nowcomplicate things for the new Fed chief. Yellen, the former Fed vice chair who is the first woman torun the central bank in its 100-year history, is expected tocalmly point to a longer-term trend toward improvement in thelabor market and to low but stable inflation as reasons forcautious optimism and for steady reductions in the stimulus. Long concerned with the pain the 2007-2009 recession causedfor American workers, she will also probably stress thatnear-zero interest rates will not be raised any time soon. "I don't think there's anything she's not going to be readyfor," said Paul Ashworth, chief North American economist atresearch firm Capital Economics. "These are sometimes political theater," he added. "It's amid-term election year ... so you are going to get somegrandstanding from both sides."

REPUBLICANS VS FED Underlining Republican unease with the Fed's aggressiveresponse to the financial crisis and recession, the House panelinvited witnesses to react to Yellen's testimony immediatelyafterward. Three of the four are critics of the bond-buyingprogram, including Stanford University's John Taylor. Conservatives worry the years of near-zero interest ratesand trillions of dollars in money-printing risk weakening theU.S. dollar, while setting the stage for asset price bubbles andan explosion in inflation. Jeb Hensarling, chairman of the House committee, has beenholding hearings on the asset purchases, which are currentlyrunning at $65 billion per month. In the Senate, fellowRepublican Rand Paul wants to establish audits of the Fed'spolicy deliberations - a notion Bernanke and others have slammedas a threat to central bank independence from politics. Committee Republicans said they want Yellen to give detailson how she will balance the Fed's responsibilities to keepinflation in check while pushing for full employment. "I'm sure she'll be hearing questions on the lack ofeffective monetary policy and the impact going forward," saidRep. Scott Garrett, the Republican chairman of the FinancialServices' capital markets subcommittee. Another Republican panel member, Rep. Shelley Moore Capito,said Yellen must do more to help senior citizens build safeinvestment returns. "No one can create any wealth with interestrates squashed as they are," she said.